BUDGETS 101: MANAGING YOUR FINANCES
Setting up a budget takes effort, and if you do it right, the benefits outweigh the time invested. A good budget doesn’t just help you save money, it also helps you stay on track in reaching your savings goals. Angeline Tan, a Certified Financial Planner with Great Eastern Life sees many people who say they want to save money.
The successful ones, she says, are those who plan and have budgets. “It’s the science of self-monitoring – if something is being monitored then you are more likely to achieve that goal,” says Tan.
DETERMINE YOUR CASHFLOW
First, determine your monthly income. This includes your salary, rental income from property you own and anything that comes in on a monthly basis. Next, figure out how much you spend. Keep all bills and receipts you’ve collected and write down everything you’ve paid for in a month, whether it’s by cash or credit card. Be honest and track every single expenditure. Implementing a good budget only works if what you’ve set up is completely accurate.
List all your spending under these three categories: fixed expenses, committed expenses and discretionary expenses.
Fixed expenses include housing, insurance, taxes and car payments, things that don’t change from month to month. Divide the sum by 12 to get the monthly cost. Under committed expenses, list utilities, mobile phone charges, food, transportation, credit card payments, children’s school fees, and allowances for parents – these are things you’re committed to.
Everything else falls under discretionary expenses: spending on clothing, entertainment, school books, children’s extra-curricular activities, medical bills, etc.
As for vacations and gifts for special occasions, add up how much you spend in a year, divide by 12 and you’ll have an idea of how much it costs per month. Once you’ve written everything down, you’ll have an honest picture of where your money goes.
SPEND LESS THAN YOU EARN More »
Tags: money managment
I recently spoke at a large event in Las Vegas. After the event I met a young man named Matt Clark. Matt has built two multi-million dollar companies from scratch and he is not even thirty yet. I was so impressed with his success at such a young age I wanted to sit down and talk with him. I was not financially free until my 40’s and that was with the teachings of rich dad. Had business changed at all from my day as a start-up?
Matt attended one of the top entrepreneur colleges. When I was young there was no such thing. The university taught Matt about customer service, brand-building, operations, finance, accounting, marketing, etc. But Matt said that’s not really where he learned the most. The best education he received was by actually going out there and just doing it. Matt’s best teacher was experience. That hasn’t changed since my day. Nothing teaches better than going out there and just doing it.
I asked Matt what advise he would give to an entrepreneur just starting out. He said that after building and starting two multi-million dollar companies and talking with lots of very successful entrepreneurs along the way, there are three fundamentals that, if any entrepreneur implements into his or her business, will increase the likelihood of creating a fun, profitable business immeasurably:
- High Margins
- Recurring Revenue
For a successful business, not one in which you’re scraping by, you should shoot for a 500% or more markup on the products or services you sell. Matt struggled for many, many months operating a business with only 30-40% profit margin. It wasn’t until he started selling his own brand of private-labeled products with a 600% margin, that he really began to experience the level of profitability a small business needs to survive.
Imagine you’re at a pool party with a bunch of kids. At one point a group of young boys are asked to line up on the side of the pool and all jump in together. Here’s what you’ll see: they line up and then it’s every boy for himself as each attempts to outdo each other. Then it’s the girls’ turn. What do they do? They all politely line up, hold hands, and all jump in the pool on the count of three together.
A girlfriend of mine shared this analogy with me a while back, and I think it’s insightful as to the difference between men and women.
One trait that I find in women is that most will carefully and fully consider those around them when making changes or big decisions in their lives – much more so than men.
This is why women often ask me how they should approach the topic of investing with their partner. Women, in general, tend to include those around them in their decisions while men tend to have a more competitive, go-it-alone attitude.
Four ways to invest with your partner
From my vantage point, there are four ways to approach the topic of investing with your partner. You can:
- Invest as a team – This would be my ideal. As the saying goes, two heads are better than one. Investing involves an array of talents—from searching out the deal to negotiating the terms to handling the fine print.Often, couples that work as a team uncover their investment strategy; and second, because they are both learning as they go, they find they now have a lot to talk about. They make decisions together, study and learn together, and spend a great deal more time together. In the majority of cases this is great for the relationship as well as the investing success.
- Invest with your partner’s support – This is the next best thing. If you have the support of your partner, then you’re not fighting an uphill battle. He is on your side, and, I assume, wants you to win. I’ve actually spoken to many investors who start here. The husband said, “You go ahead. I support you but will not be actively involved.”What often happens is once you begin the process, and especially once he sees the money coming in, then it’s hard to ignore. Instead of being a passive bystander, his interest level perks up, and he becomes more and more involved.
- 3. Invest without your partner’s support – This is not an easy position. You’re not only stepping out into a whole new world, but you’re doing it without the support of the number one person in your life. So I won’t pretend and say it’s a piece of cake; it’s not. Yet, over time, once you have some success and viable results, your partner may turnaround and become your greatest supporter. It’s women in this situation, and there are many of them, that more than ever depend upon the support from other people around them, ideally other investors.This where a women’s investing group could prove invaluable, as can existing investment clubs and organizations. If you are in this situation, surround yourself with people with similar goals and ambitions as you have.
- Don’t invest at all – I hate to even include this as an option but in reality this is what many women opt to do when they feel like they don’t have the support of their partner. As one woman told me, “If my husband wasn’t behind it, then I fear it would be too hard on our marriage.”If you’re considering giving up on your investing dreams because you don’t have your partner’s support, I would heavily encourage you not to do so. There are other ways to move forward than to simply throw up your hands and give up. Will it be hard? Yes. Will it be worth it? Yes.
Unfortunately, there is no quick fix or easy answer for getting a disinterested spouse or partner on board. However, the good news is that women are doing it all over the world, and you can too!
In 1950, a nun who was a history and geography teacher in Calcutta was called on to help the poor and to live among them. Instead of just talking about caring for the poor, she chose to say very little and helped the poor with her actions, not just her words.
Because of this, when she did speak, people listened.
She had this to say about the difference between words and actions: “There should be less talk. A preaching point is not a meeting point. There should be more action on your part.”
Games as meeting points
When I was deciding how I wanted to teach financial education and the investment skills my rich dad taught me, I made a conscious choice to incorporate games into my methods. I did this because games require more action than a lecture. As Mother Teresa said, “A preaching point is not a meeting point.” Our games are meeting points.
Games provide a social interaction for learning and helping someone else learn. When it comes to investing, there are too many people trying to teach by preaching. We all know that there are certain things that are not best learned by simply reading and listening. Some things require action to be learned, and games provide this elementary action step to learning.
Confucius once said: “I hear and I forget. I see and I remember. I do and I understand.”
My purpose in going beyond just writing books about money and investing, and creating games as learning tools, is to create more understanding. The more understanding people have, the more they can see the other side of the coin. Instead of seeing fear and doubt, the players begin to see opportunities they never saw before because their understanding increases each time they play the game.
There are many stories of people who have played our games and have had their lives suddenly changed. They have gained a new understanding about money and investing, an understanding that pushed out some old thoughts and gave them new possibilities for their lives.
A world of opportunity More »
Whether your expenses are piling up or you simply lack the financial discipline to sock away a few extra bucks every month, there are myriad reasons why it’s difficult to amount a sizable savings account.
Here’s the problem: Once you get paid, your money has to go several places at once. Bills need to be paid, credit card balances need to be settled, groceries need to be bought, perhaps even some nonessentials, too — and, in all the shuffle, the money that you should be saving becomes your discretionary income, and what should be your disposable money, you dispose of. Zero savings there.
You’re not going to break this cycle until you start treating your own savings account like a bill that needs to be paid monthly, along with your rent, car payment and utilities. You need to learn to pay yourself first.
This means that each time you get your paycheck, the first thing you do is set aside a portion of your earnings to save before taking care of your bills and other necessities. It guarantees that the money you should be saving, you’re actually saving. But a “savings-first” plan requires you to budget your money.
Saving, Bills, Fun: In That Order
As personal finance blogger J.D. Roth noted on his site Get Rich Slowly, “Most people spend their money in the following order: bills, fun, saving.” Developing the best pay-yourself-first plan should allow you to save some money and still afford your bills and responsibilities — neither obligation should suffer. So how much should you save?
In an interview with CBS News, financial expert David Bach said that people should save one hour’s worth of income every day (that’s 12.5 percent of your gross pay). Most people only save 4 percent of their income — just about 20 minutes of work. The trick is to start slow.